CMFAS M9A Suitability, Sales Process & After-Sales question: capital-guaranteed structured ILP and, needing cash

CMFAS M9ASuitability, Sales Process & After-Sales

A client holds a capital-guaranteed structured ILP and, needing cash, asks to redeem units well before maturity. Besides any mark-to-market cost, what key consequence must the Adviser flag?

A The insurer must still pay the full guaranteed amount on the redeemed units, less a small fee
B Early redemption may forfeit the capital guarantee, which applies only if held to maturity
C The guarantee automatically transfers to the client's remaining units until maturity
D Redemption is always processed at the higher of NAV and the guaranteed amount

Show the answer and explanation

Answer: B. Early redemption may forfeit the capital guarantee, which applies only if held to maturity

Early redemption may lead to the loss of certain guarantee features, such as those attached to capital-guaranteed funds — the 'higher of NAV or guaranteed amount' valuation applies at maturity, not on an early exit. Cashing out early can therefore forfeit the very protection the client valued.

Common mistake

The capital guarantee is a hold-to-maturity feature; redeeming early can extinguish it rather than pay it out.

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A structured ILP policy document discloses the upfront sales charge but omits an ongoing administrative charge that the insurer in fact deducts. Why does this fall short of the inception-disclosure requirements?In an ILP, the minimum payout and capital repayment are guaranteed by an unrelated bank (XYZ), and the policy document states the guarantee ends if XYZ is liquidated. This means In Case Study 1 the maximum return is capped at 20% while the capital is protected (barring the owner's own early termination or failure of guarantor XYZ). Beyond the early-redemption/reinvestment risk, this feature illustrates that the policy owner

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